Xerox has now raised the cash necessary to pursue its takeover of rival HP.
Topline: Xerox is forging ahead with its $33 billion takeover bid of larger rival HP, securing $24 billion in financing from big banks. It continues to present its case for a buyout directly to HP shareholders after months of back-and-forth and increasingly tense relations between the two companies.
- Xerox said on Monday that it has secured financing for its $33 billion hostile takeover bid of HP despite the rival printing company’s efforts to block the deal, the Wall Street Journal first reported.
- In a public letter to HP’s board from Xerox CEO John Visentin, the company confirmed that it had obtained $24 billion in financing from major financial institutions—Citi, Mizuho and Bank of America.
- While there was initially doubt over whether Xerox would be able to raise the cash necessary to complete such a deal, these latest funding commitments are a vote of confidence from big banks, according to the Wall Street Journal, which shows that the printing company is serious about its “value-creating combination with HP.”
- “One of the big reasons HP said they wouldn’t accept a deal was concerns around Xerox’s financing—and now Xerox is publicly showing that they’ve resolved one of the big roadblocks in place,” says Morningstar analyst Mark Cash. “This financing may cause shareholders who were previously against a deal to maybe think twice about Xerox’s proposal.”
- The two companies have been at odds since November when Xerox made several unsolicited bids that were unanimously rejected by HP’s board of directors. The rejection led Xerox to take its offer directly to HP shareholders in a bid to force the deal.
- Xerox has argued for the merger, calling it a “compelling opportunity” which would save both companies $2 billion in costs over the next two years and result in revenue growth of up to $1.5 billion over the next three years. But HP’s board has its own concerns about a deal, questioning Xerox’s nearly 10% revenue decline since last year and speculating that a combined company would have too much debt.
Crucial quote: “It also became clear from our dialogue with your shareholders that you and your advisors have been questioning our ability to raise the capital necessary to finance our proposal. … In order to remove any doubt, we have obtained binding financing commitments,” Xerox CEO Visentin wrote in his most recent letter to HP’s board. “My offer stands to meet with you in person, with or without your advisors, to begin negotiating this transaction.”
What to watch for: Famed activist investor Carl Icahn, who holds just over a 10% stake in Xerox and almost a 5% stake in HP, has reportedly been one of the deal’s biggest advocates. Xerox and HP have both struggled in recent years, spinning off different ventures to leave behind an aging printing business that remains profitable for now—though earnings are dwindling every year. According to Cash, one big question that remains is what Xerox plans to do with HP’s PC business, which accounts for around two thirds of its overall revenue. In that regard, Xerox would be buying into two markets that are slowing: printing and PCs. Cash speculates, “Does Xerox really want to do that?”
Big numbers: Xerox stock was down 1.5% on Monday, while HP’s stock rose 0.6%. The two companies have market caps of nearly $8 billion and $30 billion, respectively.
Key background: Xerox made a cash-and-stock offer for HP in early November, for $22 per share, or $33.5 billion. That bid was unanimously rejected—twice, no less—by HP’s board of directors, which said that the proposal “significantly undervalues” its company and would not be in the best interest of shareholders. After HP’s board once again rejected the takeover bid in late November, criticizing the company for using “aggressive” tactics to pursue the deal, Xerox responded with a letter saying it will go directly to HP shareholders, in the hopes that it could pressure board members to act.
Further reading: Spurned Again By HP, Xerox Prepares To Make A Hostile Buyout Bid (Sergei Klebnikov)
HP Rejects Takeover Bid From Xerox (Rachel Sandler)
HP Is 3 Times Bigger Than Xerox—And They Could Unite To Save Over $2 Billion (Lisette Voytko)
